UNITED STATES DEPARTMENT OF EDUCATION OFFICE OF INSPECTOR GENERAL. May 13, 2011

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1 UNITED STATES DEPARTMENT OF EDUCATION OFFICE OF INSPECTOR GENERAL Audit Services New York Audit Region May 13, 2011 Troy Standish Senior Vice President Servicing Operations Sallie Mae, Inc. 220 Lasley Avenue Wilkes-Barre, PA Control Number ED-OIG/A02K0002 Dear Mr. Standish: This final audit report, titled Sallie Mae, Inc. s Compliance with Selected Requirements of the Loan Participation Purchase Program Authorized by the Ensuring Continued Access to Student Loans Act of 2008, presents the results of our audit. Our audit objective was to determine whether Sallie Mae, Inc. (Sallie Mae), as a Servicer under the Ensuring Continued Access to Student Loans Act of 2008 (ECASLA) Loan Participation Purchase (LPP) Program, was in compliance with its Eligible Servicing Agreements (ESAs). Specifically, our audit was limited to determining whether Sallie Mae (as Servicer) (1) had an ESA with each Custodian; (2) prepared and submitted Weekly Loan Schedules, Month-End Loan Schedules, Exception Reports, and Lender s Interest and Special Allowance Request and Reports; (3) coded loans as owned by the Custodian; and (4) remitted collections on LPP Program loans to the Custodian. Our audit covered Sallie Mae s servicing of LPP Program loans for academic year (the LPP Program) 1 and selected aspects of its servicing of LPP Program loans for academic year (the LPP Program). We determined that Sallie Mae (as Servicer) complied with its ESAs, except for its noncompliance with a specific section in one of the agreements. We found that Sallie Mae (as Servicer) serviced about $96 million of ineligible loans as if they were eligible loans during the LPP Program. The U.S. Department of Education (Department) had purchased a 100 percent ownership interest in the principal portion of the loans from a subsidiary of Sallie Mae s parent corporation. 1 For purposes of the LPP Program, an academic year loan is one that (1) has a loan period that includes, or begins on or after, July 1, 2008, (2) has a first disbursement made on or after May 1, 2008, but no later than July 1, 2009, and (3) was fully disbursed no later than September 30, The Department of Education's mission is to promote student achievement and preparation for global competitiveness by fostering educational excellence and ensuring equal access.

2 ED-OIG/A02K0002 Page 2 of 23 BACKGROUND ECASLA (Public Law ) was enacted on May 7, ECASLA added a new Section 459A to the Higher Education Act of 1965, as amended, giving the Department the authority to purchase or enter into forward commitments to purchase Federal Family Education Loan (FFEL) Program loans. The purpose of the LPP Program, in part, was to ensure that lenders had a reliable source of funds to originate new FFEL Program loans. Furthermore, Public Law was enacted on October 7, 2008, in part, to extend the Department s loan purchase authority to academic year loans. The Department offered a separate LPP Program for academic year loans. Under the LPP Program, Sallie Mae serviced FFEL Program loans in which the Department purchased participation interests from eligible FFEL program lenders or holders of eligible FFEL Program loans (herein referred to as Sponsors ). The Department s participation interest represented a 100 percent ownership in the principal portion of such loans. The loans in which the Department purchased a participation interest under the LPP Program were held in a trust by a Custodian. 2 The LPP Program expired on October 15, Upon expiration, Sponsors redeemed the Department s participation interest either by (1) remitting to the Department an amount equal to the Department s purchase price of the participation interest plus a yield on the purchase price, or (2) selling permanently the underlying loans to the Department under the ECASLA Loan Purchase Commitment Program. Under the ECASLA Loan Purchase Commitment Program, the Department purchased outright fully disbursed, eligible FFEL Program loans. The LPP Program was conducted according to the terms of a Master Participation Agreement (MPA) dated July 25, According to Section 12(a) of the MPA, each Custodian shall enter into an ESA with a Servicer (which may also be the Sponsor) to service each loan subject to the LPP Program. Section 12(c) of the MPA specifies the terms that must be included in an ESA. SLM Corporation is the parent company of Sallie Mae (a Servicer) and SLM Education Credit Finance Corporation (SLM ECFC) (an eligible lender and Sponsor). 3 As of September 2010, SLM Corporation, through its subsidiaries, managed $182 billion in education loans and served 10 million student and parent customers. SLM Corporation was originally created in 1972 as a government-sponsored entity. In 2004, the company terminated its ties to the Federal government. SLM Corporation is a publicly held, private sector company that offers services to a range of institutional clients, including colleges and universities, student loan guarantors, and State and Federal agencies. 2 A Custodian was an eligible lender that was a national or State-chartered bank that was not affiliated with the Sponsor. 3 SLM Corporation is the official name of the company commonly known as Sallie Mae to the public. For purposes of this audit, Sallie Mae refers to the Servicer and SLM ECFC refers to the Sponsor.

3 ED-OIG/A02K0002 Page 3 of 23 The and LPP Program loans, for which Sallie Mae was the Servicer, were serviced at Sallie Mae's loan servicing center located in Wilkes-Barre, Pennsylvania. This center performs services such as correspondence processing, payment processing, claims processing, and records research. According to Sallie Mae, the facility processes 2.5 million student loan payments per month and handles more than 14.5 million pieces of correspondence and record updates annually. During the LPP Program, Sallie Mae serviced loans for three Sponsors and two Custodians (see the Table below). Table LPP Program Sponsors and Custodians Serviced by Sallie Mae Sponsor Custodian LPP Program Loans Original Loan Amount 4 SLM ECFC Wells Fargo Bank, National Association (Wells Fargo) 4,587,246 $21,442,043,351 Manufacturers and USC Credit Union (USC) Traders Trust Company 11, ,894,945 (M&T Bank) Access to Loans for Learning Student Loan Corporation (ALL) M&T Bank 1,471 10,379,118 Total 4,600,610 $21,556,317,414 AUDIT RESULTS Except for its noncompliance with Section 3.1 of its ESA 5 with Wells Fargo (as Custodian) and SLM ECFC (as Sponsor), Sallie Mae (as Servicer) complied with its ESAs. Our audit was limited to determining whether Sallie Mae (as Servicer) (1) had an ESA with each Custodian; (2) prepared and submitted Weekly Loan Schedules, Month-End Loan Schedules, Exception Reports, and Lender s Interest and Special Allowance Request and Reports; (3) coded loans as owned by the Custodian; and (4) remitted collections on LPP Program loans to the Custodian. We found that Sallie Mae (as Servicer) was not in compliance with Section 3.1 of its ESA with Wells Fargo (as Custodian) and SLM ECFC (as Sponsor) for the LPP Program because it serviced ineligible loans as if they were eligible loans. Under the MPA, loans are ineligible if the Department had previously purchased a participation interest in the loans. We identified 28,913 loans, with a total outstanding principal balance of $96,185,703 as of August 3, 2010, that were participated in both the and LPP Programs. 4 The LPP Program Loans and Original Loan Amounts for SLM ECFC are based on the Month-End Loan Schedule for the month ended October 31, 2009, and for USC and ALL are based on the Month-End Loan Schedule for the month ended September 30, Section 3.1 of the ESA between Sallie Mae, Wells Fargo, and SLM ECFC states that reasonable care shall be used when managing, servicing, administering, making collections on and calculating any amounts owed to the Department on Purchased Eligible Loans.

4 ED-OIG/A02K0002 Page 4 of 23 We provided a draft of this report to Sallie Mae for review and comment. In its comments to the draft report, Sallie Mae did not concur with our finding and recommendation. Based upon Sallie Mae s response, we modified the finding and revised the recommendation. Sallie Mae also commented on the Other Matters section of the draft report. We revised the Other Matters section in response to Sallie Mae s comments. Except for personal identifiable information (that is, information protected under the Privacy Act of 1974 (5 U.S.C. 552a)), the entire narrative of Sallie Mae s comments is included as an Attachment to this report. Because of the personally identifiable information contained in the Excel Spreadsheet attachment to Sallie Mae s comments, we have not included it in the Attachment. FINDING Sallie Mae Serviced Ineligible Loans During the LPP Program Sallie Mae did not comply with the terms of its ESA with Wells Fargo (as Custodian) and SLM ECFC (as Sponsor), because it serviced 28,913 ineligible loans under the ESA. The 28,913 loans had a total outstanding loan principal balance of $96,185,703 as of August 3, The ineligible loans did not meet the definition of a Purchased Eligible Loan under the MPA, because the Department had purchased participation interests in the loans in both the and LPP Programs. In addition, Sallie Mae did not comply with its Custodian Agreement with Wells Fargo and SLM ECFC, because the Loan Schedules prepared by Sallie Mae contained the 28,913 loans that were not Purchased Eligible Loans under the MPA. Sallie Mae Serviced Ineligible Loans Participated by SLM ECFC Under Section 3 of the MPA, loans are ineligible for the LPP Program if the Department had previously purchased a participation interest in the loans. Section 3 of the MPA defines Purchased Eligible Loan as an Eligible Loan in which a Participation Interest has been purchased by the Department. In addition, Section 3 of the MPA defines an Eligible Loan as: [A] Loan that meets the following criteria as of the applicable Purchase Date... [w]ithout limitation, the following loans shall not be eligible for sale to the Department pursuant to the terms of this Agreement... (v) loans in which the Department has previously purchased a Participation Interest, whether or not that interest has been redeemed. Under the terms of the MPA and ESA, only Purchased Eligible Loans were to be serviced under the ESA. Section 12(a) of the MPA, states: Each Eligible Loan which is subject to a Participation Interest shall be serviced by a Servicer (which may be the Sponsor) at the direction of the Custodian pursuant to the terms of an Eligible Servicing Agreement....

5 ED-OIG/A02K0002 Page 5 of 23 Section 3.1 of the ESA between Sallie Mae, Wells Fargo, and SLM ECFC states: The Servicer, for the benefit of the Custodian, as trustee for the benefit of the Department and the Sponsor,... shall manage, service, administer, make collections on and calculate any amounts owed to the Department with respect to the Purchased Eligible Loans with reasonable care, using that degree of skill and attention that the Servicer exercises with respect to similar student loans that it services on behalf of SLM Corporation or any of its affiliates.... In servicing ineligible loans under the ESA with Wells Fargo (as Custodian) and SLM ECFC (as Sponsor), Sallie Mae did not comply with Section 3.1 of the ESA. We analyzed the ownership history and the Month-End Loan Schedules for 65 loans participated in the LPP Program and found that 4 of 65 loans sampled were participated in both the and LPP Programs. 6 According to the Month-End Loan Schedules, all four loans had first disbursement dates on or after May 1, 2009, and on or before July 1, 2009, and anticipated final disbursement dates on September 30, 2009, which indicated the loans were initially eligible for the LPP Program. The Month-End Loan Schedules showed that these four loans were redeemed from the LPP Program on October 16, 2009, and that the most recent disbursement dates were after September 30, The disbursement dates after September 30, 2009, made the loans ineligible to be included in the LPP Program. Furthermore, the ownership history in the National Student Loan Data System (NSLDS) and in Sallie Mae's CLASS loan servicing system (CLASS) showed that these four loans were also participated in the LPP Program. Based upon the results of our sample, we queried NSLDS to identify all SLM ECFC LPP Program loans that had the lender identification number (LID) associated with Wells Fargo as Custodian for SLM ECFC for the LLP Program (LID ) and for the LLP Program (LID ). Of the 4,587,246 loans participated by SLM ECFC in the LPP Program, we identified 28,913 loans (approximately 0.63 percent) that had both the and Wells Fargo Custodian LIDs. These 28,913 loans had a total outstanding loan principal balance of $96,185,703 as of August 3, Included in these 28,913 loans were the four loans from our sample that were participated in both programs. We notified Sallie Mae of the ineligible loans on August 2, Sallie Mae s Audit Coordinator stated that a possible explanation for the loans being participated in both programs was that the loans were originally participated in the LPP Program and the borrower s school subsequently changed a portion of the loans (such as the scheduled final disbursement date occurring after September 30, 2009). 7 The Audit Coordinator also stated that SLM ECFC redeemed the loans out of the LPP Program and then participated those same loans in the LPP Program. Sallie Mae s Senior Vice President and Deputy General Counsel stated that loans participated in the LPP Program could be participated in the LPP Program because the programs were independent of each other. In 6 For our sample of loans, we randomly selected 60 loans which Sallie Mae serviced from the LPP Program and 5 judgmentally selected loans which Sallie Mae serviced that were not sold to the Department from the LPP Program. See the Objective, Scope, and Methodology section of this report for further details on the selection of our sample of LPP Program loans serviced by Sallie Mae. 7 In performing our audit, we did not verify the reasons loans were participated in both the and LPP Programs.

6 ED-OIG/A02K0002 Page 6 of 23 September 2010, Federal Student Aid (FSA) instructed Sallie Mae to redeem the participation interests in the ineligible loans by selling the underlying loans to the Department under the ECASLA Loan Purchase Commitment Program. On October 12, 2010, the 28,913 loans were sold to the Department. Sallie Mae Prepared Month-End Loan Schedules That Included Ineligible Loans Participated by SLM ECFC Sallie Mae did not comply with Section 11(c) of its Custodian Agreement with Wells Fargo (as Custodian) and SLM ECFC (as Sponsor), because it did not exercise due care in preparing the Loan Schedules that would be relied upon by the Custodian, as trustee for the benefit of the Department. The Loan Schedules prepared by Sallie Mae contained loans that were not Purchased Eligible Loans under the MPA. In preparing the data for the Loan Schedules, Sallie Mae should have reviewed its CLASS loan servicing system, which contained the loans ownership histories that showed the loans were participated in both the and LPP Programs. In exercising due care, Sallie Mae should have notified the Custodian that the loans were not Purchased Eligible Loans under the MPA. Section 11 of the Custodian Agreement states: Servicing Acknowledgements and Agreements. The parties hereto [that is, Sponsor, Custodian, and Servicer] acknowledge and agree that: (c) As and when the Custodian is required by the [MPA] to provide the following, the Sponsor... shall provide or cause the Servicer or other entities to provide to the Custodian on a timely basis information, including the electronic data file(s) which list all of the Purchased Eligible Loans for each Participation Purchase Request, necessary for inclusion in: (i) Loan Schedules and Custodial Certifications;... The Sponsor and the Servicer expressly acknowledge that the Custodian intends to rely on such information in preparing the Loan Schedules, Custodial Certifications, Exception Reports and Settlement Date Reports in delivering documentation required of the Custodian under the [MPA]. SLM ECFC s Noncompliance with the MPA When SLM ECFC identified the loans in which to sell Participation Interests to the Department, SLM ECFC did not comply with the MPA Section 10(b)(ii); it represented to the Department that each loan subject to any Participation Interest was an Eligible Loan. 8 Section 10(b) of the MPA, states: 8 Although Sallie Mae (as Servicer) was our auditee, we are reporting SLM ECFC s noncompliance with the MPA, because (1) SLM ECFC identified the loans in which it sold a Participation Interest to the Department, and (2) SLM ECFC is a subsidiary of the same corporate parent as Sallie Mae.

7 ED-OIG/A02K0002 Page 7 of 23 Loan Level Representations. The Sponsor... represents and warrants to the Department as to the Eligible Loans subject to any Class A Participation Interest as of each related Purchase Date and as of each date such Loans are subject to a Class A Participation Interest... (ii) Each Loan is an Eligible Loan and the description of and information regarding the Loans set forth in the Participation Purchase Request and the Loan Schedule is true, complete and correct. Based on our audit work at Sallie Mae (as Servicer), we found that SLM ECFC (as Sponsor) did not comply with the terms of the MPA, because it sold participation interests in 28,913 ineligible loans under the LPP Program. Sallie Mae did not comply with the terms of its ESA and Custodian Agreement with Wells Fargo (as Custodian) and SLM ECFC (as Sponsor), because Sallie Mae serviced the ineligible loans and included the ineligible loans in the Month-End Loan Schedules submitted to the Department. As a result of selling participation interests in the 28,913 ineligible loans to the Department in the LPP Program, SLM ECFC received the financial benefit of having a reliable source of funds, which it was not entitled, to make these loan commitments twice: first under the LPP Program and then again under the LPP Program. Under the terms of the MPA, a Sponsor can be held liable for its actions. Section 14(a) of the MPA, states, The Sponsor shall be liable in accordance herewith only to the extent of the obligations specifically undertaken by the Sponsor under [the MPA].... RECOMMENDATIONS We recommend that the Chief Operating Officer for FSA 1. Hold SLM ECFC (as Sponsor) responsible, to the extent permitted under Section 14(a) of the MPA, for any liabilities arising from the participation of 28,913 ineligible loans (with a total outstanding loan principal balance of $96,185,703 as of August 3, 2010) under the LPP Program. 2. Ensure that Sallie Mae complies with the terms and conditions of its agreements with the Department and related instructions. Sallie Mae Comments Sallie Mae did not concur with our draft finding and recommendation. Sallie Mae argued that SLM ECFC did not violate the MPA when it participated loans in both the LPP Program and the LPP Program, because the language in the MPA was not as broad as stated in the audit report. The MPA specifically excluded only loans in which the Department has previously purchased a Participation Interest, which is a defined and capitalized term under the MPA, and, therefore, specific to only those loans participated in the LPP Program. Consequently, the prohibition does not extend to loans that were participated in the LPP Program. The audit report used the lower case, undefined term participation interest and interpreted the phrase as meaning any participation interest, whether created under the LPP Program or the LPP Program.

8 ED-OIG/A02K0002 Page 8 of 23 Sallie Mae stated that the LPP Program and the LPP Program were two separate and distinct programs with separate documents and that the two programs were not linked. In the MPA, a Participation Interest can only refer to participation interests created under the MPA, and not to participation interests created under the MPA. Sallie Mae disagreed that it violated its ESA or Custodian Agreement with Wells Fargo (as Custodian) and SLM ECFC (as Sponsor). According to Sallie Mae, the ESA provides for the Servicer to act with reasonable care, using that degree of skill and attention that the Servicer exercises with respect to the student loan files relating to similar student loans that the Servicer services on behalf of SLM Corporation or any of its affiliates.... Sallie Mae stated that the proper selection of loans to be participated was a requirement of the MPA. Sallie Mae (as Servicer) was not a party to the MPA; SLM ECFC was the Sponsor under the MPA and was the party responsible for interpreting the MPA. Sallie Mae (as Servicer) acted at the direction of the Sponsor in placing loans for participation with the Department. Sallie Mae (as Servicer) believes that it acted with reasonable care, and, therefore, cannot be held responsible for the asserted violations with the MPA. Finally, Sallie Mae disagreed that a Sponsor Event of Default may have occurred. Sallie Mae stated that it responded promptly in communicating with the Department when notified of the finding. OIG Response We considered Sallie Mae s comments and have modified the finding and revised our recommendation. However, we did not modify our conclusion regarding Sallie Mae s noncompliance with its ESA and Custodian Agreement with Wells Fargo (as Custodian) and SLM ECFC (as Sponsor) and SLM ECFC s noncompliance with the MPA. Sallie Mae s argument that the capitalization of the term Participation Interest in the MPA limits the ineligibility provision only to loans that were participated twice during that same program year is contradicted by express instructions and guidance to the contrary from the Department. Throughout the course of both the and LPP Programs, FSA conducted multiple webinar sessions to provide guidance to Sponsors, Custodians, and Servicers. FSA provided notice of the live webinars on its public Web site, and after the webinars were completed, FSA posted the presentation slides and, in most instances, the transcript of the webinars on its public Web site, as a resource and guidance for program participants. The presentation slides for three separate webinars state that loans may be participated only once in the LPP Program. During FSA s webinar on June 17, 2009, 9 one of the FSA presenters provided these instructions and guidance: 9 FSA provided public notice of the webinar in Electronic Announcement Number 65, Live Internet Webinar on the Department of Education s Loan Purchase Programs, dated June 15, 2009.

9 ED-OIG/A02K0002 Page 9 of 23 [Director of Policy Liaison & Implementation, FSA]:... if a loan is put into our participation and then it is taken out by the lender, redeemed and taken out by paying the amounts and [the Chief Financial Officer, FSA] will talk about that later, you cannot put the loan back into the participation. You may not put the loan back into the participation. And too, if I may to anticipate a question, a loan that was put into the participation and then is taken out by the lender, to the extent that that loan might also be eligible for 09/10 because there is a little bit of crossover, that loan cannot be put into the 09/10 participation. Once it is in a participation and it comes back to the lender, it never goes into participation again, either from the other year or from the same year. The same point was made again, later in the webinar, by another presenter: [Chief Financial Officer, FSA]: And to follow up I think I saw part of that question was, for example, if the disbursement date got pushed out. So if it was eligible for 08/09 but the final disbursement date got pushed into October, it is no longer eligible to have to be redeemed and it cannot be re-participated in the 09/10 program. Because Sallie Mae (as Servicer) serviced ineligible loans, it did not comply with the terms of the ESA with Wells Fargo (as Custodian) and SLM ECFC (as Sponsor), as described in the finding. In addition, because Sallie Mae (as Servicer) prepared Loan Schedules that contained ineligible loans, it did not comply with Section 11(c) of the Custodian Agreement with Wells Fargo (as Custodian) and SLM ECFC (as Sponsor). In preparing the data for the Loan Schedules, Sallie Mae (as Servicer) should have exercised due care and reviewed its CLASS loan servicing system, which contained the loans information that showed the loans were participated in both the and LPP Programs. Sallie Mae (as Servicer) had access to the same data as SLM ECFC (as Sponsor) because the data resided on the same CLASS loan servicing system that was used by both parties. We concurred with Sallie Mae s comments concerning a Servicer and/or Sponsor Event of Default. As a result, we removed the language in the finding and the associated recommendation regarding a Servicer and/or Sponsor Event of Default. We have modified our finding and revised our recommendations. OTHER MATTERS Lack of Cross-Training in the Monetary Processing Department During our walk-through of Sallie Mae s mail facility at its Wilkes-Barre, Pennsylvania, location, we discovered that there was only one employee, a Monetary Suspense Research Analyst (Analyst), who was trained to perform extensive research on collections that had not been posted to a borrower s account in a timely fashion. The Analyst performed the last research step on payments prior to payments being filed as unclaimed property. The Analyst reviewed payments that could not be processed (for example, a check without a normal payment amount and borrower s name, or a cashier s check without borrower information). Although Sallie Mae s Director of Monetary Processing stated that staff members were cross-trained throughout the collection and claims process, the Analyst was the only employee trained to perform this

10 ED-OIG/A02K0002 Page 10 of 23 function. Employees who are cross-trained at different job functions can help ensure the effectiveness and efficiency of daily operations through understanding processes and performing consistently. Incorrect Loan Status Codes Reported Sallie Mae reported incorrect loan status codes on the Month-End Loan Schedules. According to the Loan Schedule and Custodial Certification Data File Fields Definition and Submission Procedures, attached to the Department s Electronic Announcement Number 62, updated September 2, 2009, the loan status codes contained in Appendix B of the NSLDS Guaranty Agency Data Provider Instructions (GA Data Provider Instructions) were to be reported under the Loan Status field on the Month-End Loan Schedule. Sallie Mae provided the Department with Month-End Loan Schedules for SLM ECFC, ALL, and USC. Of the 65 loans we reviewed, 36 loans had loan status codes that were reported as PF (Paid in Full) on the Month-End Loan Schedules. For the 36 loans, we compared the loan status codes contained in NSLDS and Sallie Mae's CLASS system to the Month-End Loan Schedules. For 27 of the 36 loans, NSLDS and CLASS both showed that the loans were not paid in full as reported on the Month-End Loan Schedules. 10 As a result, Sallie Mae did not report the loan status codes as shown in NSLDS, but instead reported incorrect loan status codes on the Month-End Loan Schedules. The incorrect loan status codes on the Month-End Loan Schedules did not result in any negative financial impact on the Department or borrowers. LIDs Not Properly Updated in NSLDS We identified 20 of the 60 randomly sampled loans for which the Original LID or the Custodian LID was not properly updated in NSLDS. The guaranty agencies are responsible for updating NSLDS. Although Sallie Mae was not responsible for the incorrect data in NSLDS, the discrepancies found represented a data reliability problem concerning the loans ownership histories contained in NSLDS. Specifically, we found: For 15 loans, the loans lender histories in NSLDS showed that the Original LID was reported in both the Original LID field and Custodian LID field, even though the loans were participated and held by the Custodian. We identified 14 SLM ECFC loans and 1 ALL loan in this category. For one ALL loan, the loan s lender history in NSLDS showed that the Custodian LID was reported in both the Original LID field and Custodian LID field. For four SLM ECFC loans, the loan s lender histories in NSLDS only reported the Original LID. A Custodian LID was never reported in NSLDS. For all 20 loans described above, the loans lender histories were correct in the CLASS system. 10 We did not verify nine loans because Sallie Mae was no longer the Servicer of these loans.

11 ED-OIG/A02K0002 Page 11 of 23 Sallie Mae Comments In its comments, Sallie Mae stated that Its employees were cross-trained and that there have been 10 individuals since January 2010 that have performed the Suspense/Unclaimed property process. Sallie Mae provided a spreadsheet detailing the time spent by each individual on the Suspense/Unclaimed property process. When participated loans are Put to the Department, they are transferred from CLASS to Sallie Mae s Department of Education Loan Servicing System (CLASS-ED). The loans are identified in the CLASS system and subsequent Month-End Loan Schedules as paid in full, but the CLASS-ED system reflects the loans proper status. In regards to LIDs not properly updated in NSLDS, for the third bullet, the loans were part of a direct Put sale, and there is no requirement to sell a loan to a Custodian before a direct Put sale. (Sallie Mae provided explanations for the other discrepancies we noted, but did not dispute them.) OIG Response Our responses to Sallie Mae s comments are provided below: Sallie Mae did not provide adequate documentation to support that cross-training was performed in the Monetary Processing Department. The spreadsheet Sallie Mae provided indicated that only 8 individuals performed the Suspense/Unclaimed property function (not 10), and did not provide the dates that these 8 individuals performed the function. According to the Loan Schedule and Custodial Certification Data File Fields Definition and Submission Procedures, the NSLDS loan status codes contained in Appendix B of the GA Data Provider Instructions were required to be reported under the Loan Status field on the Month-End Loan Schedule. For 27 of the 65 loans we reviewed, Sallie Mae did not report the correct loan status codes as required. Sallie Mae reported a PF loan status code for these loans, which was not the proper status of the loans at the time, because the loans were not Paid in Full. Rather, Sallie Mae used the PF code to indicate that loans were transferred from the CLASS to the CLASS-ED servicing system. As a result, Sallie Mae reported incorrect loan information to the Department through the Month-End Loan Schedules. Under the LPP Program, a Custodian held title to a loan in which a participation interest was sold to the Department. As such, the loan s lender history in NSLDS should have reflected the Custodian LID for the period of time the loan was subject to a participation interest, regardless whether the Sponsor redeemed the loan or sold the loan to the Department under the MPA s Put Option.

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